NEW YORK – The tax-exempt market has appeared to make a turnaround for the better, as munis are stronger for the second day in the row. Many traders said deals were priced much better yesterday following a week of large backups in yields.
“I am trying to see a silver lining in the cloud,” an Atlanta trader said. “A lot of deals yesterday got repriced on the upside and it’s the first time we’ve seen that in a while.”
Still, the trader said, “There is still residue to get through and balances to get through. But we did see for the first time in awhile where subscription levels were big enough to warrant bumps yesterday.”
Munis were slightly stronger Thursday morning, according to the Municipal Market Data scale. Yields inside five years were steady while yields between six and eight years fell up to three basis points. The nine- to 11-year yields fell up to four basis points while yields outside 12 years fell one and two basis points.
On Wednesday, the two-year yield finished steady at 0.36%. The 10-year yield and the 30-year yield each fell two basis points to 2.31% and 3.45%, respectively.
Treasuries continued gains for the second day as well. The benchmark 10-year yield fell three basis points to 2.27% while the 30-year yield dropped two basis points to 3.36%. The two-year was steady at 0.38%.
In the primary market, Goldman, Sachs & Co. is expected to price for institutions $939.8 million of California State Public Works Board lease revenue bonds, rated A2 by Moody’s Investors Service and BBB-plus by Standard & Poor’s and Fitch Ratings, following retail pricing Wednesday.
Retail investors ordered about $238.8 million of bonds, or about 25.4%, according to a spokesman for the California state treasurer.
Yields ranged from 1.11% with 2%, 3%, and 4% coupons in a split 2014 maturity to 5% priced at par in 2037. Portions of credits maturing between 2014 and 2022, and credits maturing between 2023 and 2026, 2028 and 2031, and between 2033 and 2036 were not offered for retail. The bonds are callable at par in 2022.
Barclays Capital is expected to price $300 million of George Washington University taxable bonds, rated A1 by Moody’s and A-plus by Standard & Poor’s.
Throughout the month of March, ratios have risen as munis underperformed Treasuries and became relatively cheaper. The five-year muni-to-Treasury ratio rose to 90.3% from 77.3%. The 10-year ratio rose to 100.9% from 93.4%.
The 30-year ratio fell only slightly to 102.1% on Wednesday from 104.5% at the beginning of the month.
The slope of the curve has continued to collapse through month – and throughout the year – as investors reach further out on the yield curve in search of extra income. The 10- to 30-year slope of the curve fell to 114 basis points from 155 basis points at the beginning of March. It has fallen from 169 basis points from the beginning of the year.
In economic news, seasonally adjusted initial jobless claims fell 5,000 to 348,000 in the week ending March 17. Continuing claims fell 9,000 to 3.352 million for the week ending March 10.
Initial claims were lower than the 355,000 expected by economists, and were the lowest since Feb. 16, 2008. Continuing claims were below the 3.380 million expected by economists and were the fewest since Aug. 9, 2008.
“The initial jobless claims data point to further improvement in the labor market in March and, although it is early … to make a forecast for March payrolls, we think the odds favor a fourth consecutive 200,000-plus reading,” wrote economists at RDQ Economics. “Although one cannot read too much into any one week’s data, the trend in claims has been downward and, with the latest reading dipping below the 350,000 mark, the report hints at the potential for stronger job creation ahead. We think the economy is entering a phase where more of the gains from growth accrue to labor rather than capital and we believe that stronger job creation will be sustained throughout 2012.”
